down a steep embankment sunday. emergency responders, some trained in rope rescued, helped bring victims back up to the driveway. the driver has not spoken to authorities. he was severely injured in the crash. the second firefighter killed in a christmas eve ambush has been laid to rest. he was the youngest member of the fire department. he was on duty that morning so those other firefighters with young children could have the holiday off. his obituary described him as, quote, everyone's little brother. who died doing what he loved. his comrade, lieutenant mike chipirini, was laid to rest sunday. the family says they're asking people to do acts of service in his honor. the two unsuspecting firefighters were shot and killed while battling a house fire set by the gunman. that will do it for this hour of "newsroom." we wish you a very happy new

year and a great 2013. my colleague wolf blitzer and "the situation room" up now. >> deb, thanks very much. happening now -- >> -- how we solve this thing, then they've got another thing coming. >> that's not the way a president should lead. this is, these are draconian effects. >> a fever pitch here in washington with only eight hours left before the country tumbles over that so-called fiscal cliff. we're live with the very latest. also, cries of outrage from americans across the country. what the impasse means for small business owners, and who's to blame. and a blood clot lands hillary clinton in the hospital this new year's eve. our dr. gupta tells us just how serious this condition could be. we want to welcome viewers from the united states and around the world. i'm wolf blitzer. you're in "the situation room."

we're now less than eight hours away from what could be a dire moment for the united states economy, if president obama and the congress can't agree on a deal to keep the country from plunging over that fiscal cliff. here's what both sides are considering in a potential deal right now. an increase in tax rates for families making over $450,000 a year. extending unemployment benefits. and an increase in the estate tax. the president seemed hopeful but cautious when he addressed the american people earlier today. >> today, it appears that an agreement to prevent this new year's tax hike is within sight. but it's not done. there are still issues left to

resolve. but we're hopeful that congress can get it done. but it's not done. >> let's get straight to our chief white house correspondent jessi jessica yellin. she's over at the white house with the very latest. the president seems pretty optimistic that it's within a few hours we could have a deal, right? >> reporter: wolf, the people i just spoke to here say they are no more or less optimistic than they were this morning. which is to say they are not cueing the confetti just yet. senator mitch mcconnell, the republican leader on the hill, is still talking to the white house. the white house is in constant contact with the democratic leader harry reid. and they're working towards some kind of an agreement. but the white house has all along had -- during these past few days, been somewhat hopeful that they could reach some kind of agreement in the senate. all along, they have been far less optimistic that there would be an agreement that can get through the house. only because from the white

house's perspective, from democrats' perspective broadly, they've been let down time and again by speaker boehner. they've never been able to reach a deal with speaker boehner. and now with this news that the house is going to be breaking for the evening, it does look like that might happen again. now, there's one reason, wolf, why they are filling this package with measures that could appeal to democrats, not just, as you mentioned, increasing, letting taxes for the highest income earners go to clinton rates. also extending unemployment benefits. but also it includes tuition credits and tax credits for kids because these are designed to woo democratic votes. they need as many democrats to support this as possible. >> they need a combination of 218 in the house of representatives. that vote is not going to happen, clearly, today. as you know, jessica, the president now facing some criticism over the remarks he made over at the white house earlier in the day.

walk us through what the political calculations were in his decision to go out and do that speaking event earlier in the day. >> reporter: well, it was a two-pronged effort, right. on one hand, an effort to push democrats to get on board. he was surrounded by a so-called regular americans who would see their taxes go up if there is no deal. and he made the case to democrats that -- and to the broad congress but mostly his own party that this is filled with measures that would appeal to their own voters, and they could live to fight the right of their priorities that are in this package another day. then there was a lot of red meat in his speech. at one point, he said some words that are getting now some attention, some criticism from republicans who thought it was quite partisan. he accused republicans of trying to, quote, shove spending cuts down -- well, shove spending at us. a bit of a dig. and so this is a part of it would seem a pr effort to wage

blame -- lay blame on the republicans in case this fails. the president trying to get as much distance from this and laying this as a congressional effort, not a white house effort, but a congressional effort, again, in case this fails before -- and we go over the cliff, wolf. >> over at the white house, do you have any idea when the senate might be taking up this, have a roll call on whatever deal might be emerging? >> reporter: i don't, but i have a feeling we should try checking in with dana bash. she will have the first word on that. >> let's go to dana bash right now. first of all, the reaction to the president's remarks. we heard some biting criticism that the president was inappropriate in saying what he said at this sensitive moment. >> reporter: that's right. i'll get to that in one second. to answer your question, we don't know yet about the senate, but we do have a little bit of news that jessica alluded to, and that is the house will break tonight. we reported earlier this is likely.

now it's official. the house will break tonight, new year's eve, december 31st, the night of the fiscal cliff, without voting on the fiscal cliff package. they're going to likely come in, if there's something to vote on tomorrow, and vote on it then. this is a procedural reason because they just don't have anything to vote on. it's also politically advantageous because house republicans and democrats are now going to be able to vote on effectively a tax cut, not a tax increase, because taxes go up january 1st. i think the best way to answer is by telling you what mitch mcdonnell did, the senate republican leader, the point person with the vice president in the past 24 hours in these negotiations. he said, we are so close on almost everything that we should just hold a vote right now. he believes they're there. they have a deal on most of the -- all of the tax issues and most other issues except for one

outstanding issue, and that is the sequester, those mandatory spending cuts, how to delay those and in what timetable and in what fashion. democrats simply haven't -- we haven't heard from harry reid yet but privately democrats are saying we're not ready to do that yet because we still don't think we have a deal. mitch mcconnell trying to push things along by saying that publicly, he's fine with voting on all of the things they have agreed on right now. >> dana, let's get back to this procedural issue. the vote in the house presumably tomorrow, but that only follows a vote in the senate. that vote in the senate has to take place, correct me if i'm wrong, between now and midnight, is that right? >> reporter: if we don't officially go off the fiscal cliff, yes, that's correct. if it happens after midnight, then officially, everybody's taxes will go up. the real-world effect won't happen quite yet because people won't get their paychecks on january 1st. i mean, things take a couple of days to actually happen practically. and the senate very well could

come in tomorrow on a federal holiday, on january 1st, when the markets are not in session, markets aren't operating, so there's nobody to be spooked by congress failing to do this. but we're sort of not there yet. we are still eight hours away. according to some sources i just talked to before coming on to you, legislatively, they feel they could probably get this stuff written. most of it is written already. they can put it together pretty fast and get it on the floor for a vote. so the next few hours are absolutely critical to figuring out if that is going to happen. >> but it's fair to say, dana, and i want to be precise, that the united states is now going to go over the fiscal cliff because the house of representatives will adjourn and they will not consider anything that the senate might pass tonight. so we are going over the fiscal cliff, isn't that right? >> reporter: technically, that's absolutely right, you're right. because to not go over the

cliff, both houses of congress will have to pass something to avert that, and the president will have to sign it. so that is true. and that is why, as i said, politically, there aren't a lot of -- there are some people who aren't that upset about it, because it kind of makes the medicine go down a little bit easier when they vote on these cuts. having said that, we've heard from democrats in particular, for weeks now, that, you know, to sort of take a deep breath, that yes, it is called the fiscal cliff, but it is more of a slope, and particularly advantageous to members of congress who haven't got be their work done that january 1st is a federal holiday. so nothing is going to happen and there aren't going to be any real-world effects, especially when we're talking about the thing that really matters the most to a lot of people around here, just how the market is reacting. we saw the market go up today at news, seemingly at news that things were going well here. so, but technically, i think you're right, i think if the

house doesn't vote tonight, which we know they will not, technically we're going over the cliff. >> very quickly, that 72-hour rule in the house, i believe there's a rule, that they have to have 72 hours to read legislation before they vote. are they going to waive that rule? >> reporter: what do they say about rules? they're made to be broken, wolf. i think that's safe to say. they would waive that rule, yes. >> all right, dana, stand by. we have two guests joining us right now. two key senators, republican senators john mccain of arizona and lindsey graham of south carolina. senators, thanks to both of you for coming in. let's go to both of you, senator mccain first. i know you were angry at the tone of the president's comments today, but give us your sense. are you going to vote for this legislation, assuming there's a deal? >> if there's a deal, obviously. if it does not have at least a delay in implementation of sequestration, which the secretary of defense has said will be devastating to national

security, then i probably cannot vote for that, unless that's included in the deal. >> if it's a two or three-month delay, sequestration going into effect, in other words, those billions of dollars in defense cuts that are supposed to go into effect right away, if it's delayed for two or three months, is that good enough to get your vote tonight? >> i think i would have to see the rest of the package obviously, wolf. i want to support anything that would avert what's going to happen if we don't act. but at the same time, i can't vote for something that i think -- and i agree with the secretary of defense and the chairman of the joint chiefs of staff that will devastate national security. but i could certainly support a delay in its implementation. but i would have to -- i would also want there to be a specific date for us acting on sequestration. >> senator graham, i know you agree on that specific issue, with senator mccain. but you know we are now technically going over the

fiscal cliff. because the house of representatives is going to adjourn. they're not going to consider anything that you guys in the senate might pass. at least until tomorrow. so from your perspective, what does that mean, senator graham, that the country, the united states, is now going over the fiscal cliff? >> i just think it shows the dysfunction of the political system. back to the president's performance today, that was pretty unusual. to have a -- kind of a pep rally in the middle of negotiations. what john said about defense cuts going into effect, shooting the military in the head, according to secretary panetta, is real and true. but i want to cut $1.2 trillion over the next decade. we're going to spend $46.5 trillion. it's not hard to find $1.2 trillion. i just don't want to destroy the defense department. so if you delay the cuts, you're going to lose votes in the house. you're going to lose votes in the house because people in the house want to cut the government. i want to cut the government. i just don't want to destroy the defense department. >> do you have any idea, senator

mccain, as we speak right now, when the senate will vote on whatever agreement has been reached? >> well, i think there's hopes that we, if we vote tonight or tomorrow, i know there are concerns about the sequestration aspect of it. we're also very concerned that there's no spending cuts associated with a tentative deal. but there's no doubt that the president -- straight talk, wolf. the president has won the election. he does have an advantage here. he has a larger approval rating than the congress does. but that doesn't mean that we sacrifice principle. sequestration to me is a principle. >> a very important issue. i assume they're going to work out an arrangement that they will delay that sequestration, those automatic defense cuts, at least for a few months. presumably that will -- i assume that will allow you, senator graham, to go ahead -- and you might not be thrilled with this compromise, but if it's 400,000 for individuals, 450,000 for

couples, that would be acceptable to you, and let the -- those people earning more than that a year see their tax rates go from 35% to 39.6%? >> hat's off to the president, he won that argument. bowles/simpson eliminated deductions to generate revenue. raising rates is a solution the president came up with, it's not bipartisan, but i would vote for the deal you just described. back to sequestration. we promised the american people in august when we raise theed the debt ceiling by $2 trillion, we would offset that debt ceiling with a dollar for dollar cut. the $1.2 trillion, the supercommittee's failure to find those cuts, was part of the budget control act deal in august 2011. if we set aside those spending cuts, we broke our promise to the american people to pay for more borrowing. so i think you lose a lot of votes in the house if you don't offset sequestration for at least a couple months, not just

delay it. >> does it make any -- go ahead, senator. >> wolf, the president, during the campaign and -- just before sort of -- sequestration won't happen. he didn't say it might not, he said it won't happen. so i hope he'll keep to that pledge in these negotiations. >> can i add something? we made about ten different proposals to offset the effects of sequestration on the defense department and other areas of the government till march of this coming year, so about $22 billion. they say no to everything. we've got $3.5 trillion to choose from, in trying to find an offset for three months. it's ridiculous you can't find an offset for three months. >> are you going to use the raising of the debt ceiling in february or march, senator mccain, as leverage to get what you want from the president? >> i think there's going to be a whole new field of battle when the debt ceiling rolls around. most of us have pledged that we're going to have to -- before we vote, again, to raise the

debt ceiling, even though it may be at great political cost, we've got to address spending, and that means entitlements. we've got to get us back on a path. look, we just added $2.1 trillion in the last increase in the debt ceiling. and spending continues to go up. i think there's going to be a pretty big showdown the next time around when we go to the debt limit. >> there will be another round of fighting to be sure. let's see what happens over the next 24 hours. it's clear right now since the house is about to adjourn that the u.s. is going over the fiscal cliff, at least technically. we'll see what the senate does tonight, if anything. what the house of representatives does to follow the stakes, as all of us know, are enormous. senators, thanks very much for joining us. >> thank you. >> congress had well over a year to tackle this fiscal cliff. instead, we've come down now to the final eight hours before our nation takes a severe hit potentially to the economy.

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we're following the breaking news. the united states will, yes, will be going other the fiscal cliff. at least technically. the house of representatives deciding only moments ago that it will not consider any legislation that might be passed by the senate tonight as a result. fiscal cliff, that's going to be a fact of life. let's bring in our senior congressional correspondent dana

bash, once again she's joining us. tell us the very latest. because, as you and i have been pointing out, technically at least, we're going over the fiscal cliff. >> that's right, we are. since the couple of minutes ago that you and i talked, senate republican leader mitch mcconnell has called a meeting right down there, i'm in the house side, over there on the other side of the rotunda is the senate, and not too far away from there is where senate republicans are going to meet. we don't know yet whether or not senator mcconnell is going to announce they do actually have a deal or whether he's simply going to give them a status report or many other variations of what they could be talking about. so we're going to try to monitor that. that meeting starts probably about ten minutes. back to what we talked about at the beginning of the hour. it certainly is noteworthy but perhaps not surprising, since we don't have a deal, that the house of representatives has decided that they're going to have one vote on a nonrelated issue in about an hour and a half or so, and then they are going to go home for the

evening. they're going home before the clock strikes midnight. i was e-mailing with house republican sources to find out if they waited to make this official -- when i say official because we have been reporting pretty much all day this is the likely scenario, but if they waited to make it official until the markets closed in order not to speak them because as you and i talked about, the markets are not open tomorrow, it's a federal holiday, it's new year's day. i haven't gotten a response to that. the only thing i've seen is more of a shoulder shrug, what else are we supposed to do, because the senate doesn't have a deal, much less a vote yet. >> i've been hearing from republican sources who are knowledgeable about what's going on, dana, and they basically reached an agreement on virtually everything except one sticking point. just reiterate what is that major sticking point that is preventing harry reid, mitch mcconnell, from letting this legislation come up for a roll call vote on the floor of the senate? >> that sticking point has to do

with those mandatory spending cuts that congress put in place a year and a half ago in order to try to force themselves to cut spending elsewhere. the question is, it's called the sequester. the question is whether or not to delay it. the big sticking point right now, depending on who you talk to, republicans, wolf, they say the sticking point is over the fact that they believe the agreement is to delay the sequester for two months and replace it with other spending cuts. and they say the democrats simply aren't telling them what those cuts are. they say it's about $24 billion, which when you're talking about this kind of amount, is not very much. talk to democrats, however, they say that's not the issue. they, at least the democrats in the senate, want to delay the sequester for more than that. maybe up to a year. so that is where the sticking point is. that's why mitch mcconnell, as we talked about at the top of the hour, went to the senate floor after the president spoke and said, we have a deal on everything else, let's just take

a vote and move on. and that would effectively mean the sequester would go into effect january 2nd. a lot of federal agencies would start having to figure out how they're going to cut. >> you heard mores mccain and graham say they couldn't support it if those defense department cuts are automatically going to go into effect right now. they couldn't support it. that's why there is this desire to kick the can down the road at least two or three months, maybe longer, as far as the defense cuts are concerned. dana, stand by, because tom foreman is joining us right now. tom's been taking a very close look at some of these late-minute sticking points. >> it's been interesting to watch the goal post moving during this negotiation. as you know, one of the real sticking points we've heard for a long time here is is this question of income tax and where the threshold would be for a tax increase. now, obviously, if we went over the cliff, if we go over the cliff and nothing else happens, everybody's taxes rise. the white house has been arguing for quite some time they did not want that to happen. but instead, they wanted taxes

to rise for peep wpeople who mae more than $250,000 a year. we're talking about couples right now. that was the target for the white house. republicans by and large said they don't want taxes to rise for anybody but if they had to, they put the threshold down here at about $1 million a year for pe people making income out there. this has gone back and forth. a lot of tough, tough words on both sides. and this is where we stand at this hour, wolf, in terms of negotiations. down here at around $450,000 per couple, $400,000 for an individual in terms of annual income. below that, no tax increase. above that, a return to the clinton era tax level for the highest earners. that would go from 35% for the highest earners to 39.6%. they think that would generate about $600 billion by doing charge. if you look at this, in a raw sense, wolf, you would say the negotiation seems to have favored the president and that seems to be what was pushed in large part by senator graham

there a short while ago. when he said congratulations to the president on these negotiations. however, it's important to bear in mind, even though this may represent what seems to be an win on this id so, the republicans started off with the claim that many people did not think they'd get anyway. the white house had some pushback from urban areas who have a lot of people in their constituencies, congress members out there who have people who make more than $250,000 who are worried about it getting too far down here. wolf, this was the big sticking point for a long time. now it does seem to have moved to sequestration. that's where the debate seems to go on. >> let's talk about sequestration. it's a fancy word. basically means automatic cuts go into effect, beginning tomorrow morning, january 1st. even though it's a federal holiday. unless legislation is passed to stop that. >> yeah, that's right. the question of what you do with sequestration at this point is

completely up in the air. because if this is the new bargaining chip, we don't know what happens to these. the whole purpose of them being automatic in the first place was for both parties to be pushed to a deal. at this point, that seems to be the complaint of some members. saying, if you just keep moving it when you get close to the deadline, what kind of deadline is it? you have to deal with these grapples. >> the bottom line, at least now, as we await action on the floor of the united states senate, if there's a deal or no deal, legislation could come up for a roll call vote. but the bottom line is since the house of representatives has gone into recess, at least for the night, the u.s. is, is going over that so-called fiscal cliff. we'll see what happens over the next few hours. tom foreman, thank you. much more on the fiscal cliff coming up. there are serious ramifications for almost every american involved in this negotiati negotiation. we'll update when when we come back.

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okay, we've got the breaking news we're following here in washington. we've been thinking about it. we've been talking about it for a long time. guess what, the united states is now going over the so-called fiscal cliff.

that's because the house of representatives is adjourning as we speak right now, will not consider any legislation that may be passed by the senate later tonight. for all practical purposes, at least technically, we're going over the physical cliff. we'll see what happens over the next few hours. let's bring in our chief business correspondent ali velshi, joining us from new york. practically speaking, i'm not sure it does have a huge impact, although technically we're going over the cliff. >> sure, technically, we are going over the cliff. people have been asking me. what it means is, if it doesn't get fixed tomorrow or in the next couple of days, we are over the cliff. the issue is, do we hit an outcropping on the way down, or can we get a parachute and get rescued? bottom line, all the effects of the physical cliff do start. the only good news is tomorrow is a federal holiday. which means a lot of the actual mechanics of what is about to happen won't happen till

wednesday. one of the biggest things, wolf, is markets will not open. they will not start trading until tuesday evening, our type, 8:00 p.m. after having 517 days to not get this done, they seem to have bought themselves another day. the bottom line is, yes, we're over the cliff. technically. if we remain over the cliff 24 hours from now or 48 hours from now when markets start to open in asia, then you're going to possibly see a very serious reaction to it. but we've bought a little bit of time. >> i don't want you to leave. stay with us, ali. >> i'm not going anywhere. >> i want to bring in someone else who knows a little bit about the politics of taxes a lot better. joining us, the university of southern california law professor ed kleinbarg. previously surged on the joint congressional committee on joint taxation here in washington. practically speaking, let's assume the senate passes legislation tonight and tomorrow, the house of representatives narrowly gets

218 votes, they pass the exact same piece of legislation. having gone over the fiscal cliff technically, does that have any real substantive impact? >> no, wolf, it really doesn't and frankly, even if it gs a few days, congress can retroactively reduce taxes to january 1st and no one's going to be late off in the federal government on january 2nd or 3rd. we actually in my view have a few days. >> here's my concern, and i want ali to get involved in this conversation. here's my concern. the longer it's not worked out, the more likely it won't be worked out because all sorts of extraneous issues will come up and it's going to be more complicated. you worked in congress for a long time, ed, you agree or disagree? >> no, i agree, it becomes more difficult. and if it stretches later into january, then everything changes because then we'll be looking at a number of lawmakers trying to

defer any decision until the debt ceiling crisis, and they'll try to roll everything into the debt ceiling crisis. it needs to be done in the first week of january. >> let me ask you this, ed, there are sort of two ways looking at taxes. one is from the government perspective about revenue and the larger issues we're dealing with. the second one is payroll. second one is payroll services or companies that handle this themselves. at what point does this become a concern for those companies? is it when the first check gets cut after the new year or are they worrying about it now? >> no, it's a great question. it turns out the irs sets withholding tax rates. the irs has not directed anyone to change their withholding yet. i think what the irs is relying on is first that they expect congress to do the right thing. but even if congress ends up doing the wrong thing, and raising everybody's taxes, and does that sometime in january, most americans get tax refunds. at the end of the year. i think the irs is relying on

the fact that they have that cushion. so that even if tax rates go up, that still gives the irs and payroll companies time to change the rules. the result will be smaller refunds for most americans. but not necessarily a big check. so there's a little bit of time there. the one place where you will see a smaller paycheck starting with your first paycheck in 2013 is the payroll tax. because nobody's proposing to continue the 2% payroll tax. family, $50,000 a year income is going to pay $1,000 a more in tax from that alone. >> but that was always seen as a temporary tax cut, to stimulate the economy, create some jobs, right, ed? >> yes, it was. of course, the trouble is everything we're talking about, including the bush income tax cuts, originally described as temporary. "temporary" doesn't mean the

same thing in congress as it means to you and me. yes, you're absolutely right, the payroll tax cut was described originally as a temporary provision to deal with the economic collapse. >> we've got to leave it there. i just want to point out that if, in fact, they reach an agreement where there will be no tax increases for individuals making under $400,000 a year, and couples making under $450,000 a year, those temporary -- temporary bush tax cuts in 2001 and 2003, they will become permanent for all americans earning under $400,000 as individuals, $450,000 as a married couple. those become permanent. no longer become temporary tax cuts. ali, don't go too far. ed klinebarg, appreciate your help. the stakes are enormous for millions and millions of americans. the fiscal cliff is certainly the classic washington crisis

where no one winds up looking very, very good. coming up in our strategy session, we're going to break down some of the politics. humans. even when we cross our t's and dot our i's, we still run into problems. namely, other humans. which is why at liberty mutual insurance, auto policies come with new car replacement and accident forgiveness if you qualify. see what else comes standard

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talk to your doctor about crestor. [ female announcer ] if you can't afford your medication, astrazeneca may be able to help. let's get right to our strategy session. lots to discuss. joining us, the democratic strategist. worked in the campaign, as all our viewers know. joining us from miami, our cnn contributor, the republican strategist ana far vnavarro. thank you very much for coming in. let's play the excerpt of what the president said earlier today. >> we're hopeful that congress can get it done. but it's not done.

we can put all this behind us and just focus on growing our economy. but with this congress, that was obviously a little too much to hope for at this time. you hear that sometimes coming from them. it's sort of, after today, we're just going to try to shove only spending cuts down -- well, shove spending -- shove spending cuts at us. so, as this point, it looks like i'll be spending new year's here in d.c. ya'll are going to be hang out in d.c. too. i can come to your house, is that it's right, sir? i don't want to spoil the party. >> he was clearly trying to generate support for his side of this story, but a lot of republicans came out very, very angry. they say this is not the moment for the president to be joking about these sensitive issues.

at a critical time when they're very close to a deal. >> i agree with that. i think it was a very odd press conference. he has been incredibly articulate since being elected. he's someone whose best speeches have been done since being elected. but i tell you, today was inappropriate. the tenure, the tone, was inappropriate. i walked in to clapping and joking and laughing. i thought i was hearing something else. i thought maybe he was at some party or celebration. i thought maybe we had reached a deal. the bottom line is there's nothing to be laughing at. there's nothing to be joking about. the united states is going over the fiscal cliff. and it is a failure of both our branches of government. of congress but also of the president. he many times, wolf, talks as if he's a visitor in washington, still teaching a current affairs class at the university of chicago. look, i'm willing to tell my republicans in congress, folks, we need to work with the president. but the president also needs to

work with congress. >> all right. hold on for a moment. because i want to bring jen saki into this conversation. senator mccain, he minced no words. listen to what he said following the president's remarks. >> historians judge presidents by what happens on their watch. for the president to go out and make comments which clearly will antagonize members of the house, what he is saying to the republicans on both sides of the aisle, but particularly the house of representatives, take it or leave it. that's not the way presidents should lead. >> all right, go ahead and react. he's not a happy guy. a whole bunch of others said, you know what, the president can do this kind of stuff, but why do it in sensitive moments like this? >> i have to say there are millions of people across the country that are frustrated. that can't figure out why congress hasn't gotten this done.

i think the president was channeling their frustration. explaining what was about to happen. explaining that we were close to a deal. and channeling what many across the country feel. if house republicans were able to or willing to negotiation, if they weren't going to go home tonight, if they would have a discussion about how to move this forward, maybe we wouldn't be here to begin with. for anybody who is complaining, ana, senator mccain, i suggest you have some spinach and strengthen up because it's a tough fight, we have to get through together. >> all right, hold on. we have breaking news we're following right now. >> announcer: this is cnn breaking news. >> we're just getting new information into "the situation room." about the secretary of state hillary clinton and her condition it she's been hospitalized. we did not now till right now where that blood clot has been located.

let's bring in our correspondent j jill dougherty. >> reporter: just a minute ago, wolf, here it is, it's coming from secretary clinton's doctors. there are actually two of them. dr. lisa bardik and dr. gigi al bayumi. it's pretty technical. it says in the course of a routine follow-up mri on sunday the scan revealed that a right -- revealed that a right transverse sinus venus thrombosis had formed. a clot in the brain situated in the space between the brain and the skull behind the right ear. it did not result in a stroke or neurological damage. to help dissolve this clot, her medical team began treating the secretary with blood thinners. she will be released once the medication dose has been established. in all other aspects of her recovery, the secretary is making excellent progress and we

are confident that she will make a full recovery. she is in good spirits, engaging with her doctors, her family and her staff. so this is the update from secretary clinton's doctors. giving us information about that question, which really has been hanging out there all day, unanswered. exactly where was that blood clot. speculation had been it might be in her leg where she had a problem a number of years ago back in 1998. but now we're finding it is between the brain and the skull, behind the right ear. however, they're noting, again, the doctors, that she did not have a stroke or any neurological damage. and apparently, other than that, she is recovering quite well. >> are they explaining why they didn't tell us this yesterday, 24 hours ago, when they left us all wondering where this blood clot was? because there was so much speculation it was in the leg, and then i was wondering, is it

in the lung, is it in the head, where is it. and they just left us hanging, now, for 24 hours. why didn't they explain that to us right away? >> well, wolf, that's a good question. i think a lot of people have been answering that. because as you mention, it has been raising questions all day. speculation where it could be. initial speculation was that it could be in her head, in some, you know, section, maybe near the brain. after all, she did have a concussion. and that was a first surmisal. but then as they talked about the medication that she was on, blood thinners, our own sanjay gupta, the chief medical correspondent for cnn, was indicating that it might -- of course he didn't know all of the details, but he was saying it might be in the leg. because after all, as we were saying, in 1998, she did have deep vein thrombosis behind her knee, in her leg. and that might have been it. but now it's turning out that it's not it. and it feels much -- it

obviously is in her head and that feels more worrisome. at least to the lay person. >> well, let's get an expert opinion now. joining us is dr. david deaden of georgetown university school of medicine. he's chief of surgery. thank you very much for coming in. i've been very worried ever since i heard she had a blood clot it was in the brain. that sounds to me, as a lay person, much more serious than if it's in her leg or some place else. >> well, it's always serious when you get a blood clot anywhere in your vascular system. the vast majority of people when they describe a blood clot, they are referring to the legs. i think that's what led to speculation. in the head, it's still in the venus system. as long as she's asymptomatic, she will probably recover without any sequela. >> without any what? >> without any future problems. >> is there ever a need for future surgery if you have a blood clot, as it says here in the statement from her doctors, a blood clot situated between

the brain and the skull behind the right ear? what does that say to you? >> well, this is really within the specialty of neurosurgery but to my knowledge that would be very rare. >> how do you treat a blood clot in the brain? >> your body's own system has a way to break up blood clots. we treat with what are called blood thinners. they change the balance in the body so the body can resolve that issue and heal itself. >> let's go through this line by line and give us your expertise. obviously, you have not treated hillary clinton. but you do know what her two doctors, dr. lisa and dr. gigi, have reported to us. in the course of the follow up, the scan revealed that a right transverse venus thrombosis has formed. >> transverse sinus is the drain that goes back to the heart. just like in the leg where we have deep vein thrombosis, this

is basically deep vein thrombosis in the head, rather than in the leg. >> because it says this is a clot in the vein situated between the space, between the brain and the skull, in the right here. so not in the brain but near the brain. >> no, these veins travel over the surface of the brain, so it's not describing a bleed inside the tissue of the brain itself. >> hold on, i want to take a quick break. we have a lot more to discuss. obviously, all of us are worried about the secretary of state hillary clinton. she does have this blood clot in her head now. we are told it's not in her lungs, not in her leg, as a lot of speculation had occurred. much more on the secretary of state's health right after this.

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following breaking news out of new york. secretary of state hillary clinton has been now diagnosed a blood clot in her head, near the brain, near the area between the brain and the skull, right behind the right ear. we're talking with dr. david deeten, chief of vascular surgery at georgetown university here in washington. based on the information we're get, she was suffering from the

flu, severe case of the flu. she was dehydrated. she fainted. at one point. she hit her head. had a concussion it and now we've learned she has a blood clot that was discovered by a routine follow-up mri on sunday, in her head, near the brain, behind her ear. give us your perspective now. did the blood clot, based on your expertise, original from the concussion? >> i think it was likely associated with the concussion, yes. >> what does that mean in terms of her prognosis? what does she need to do? if you were helping her, you've helped people in situations like this, what would you tell her? >> well, the primary determinant of how she'll do is how she's doing currently. all the information as described thus far, she'll probably recover without any further incident. >> recover completely or lingering effects? >> no lingering effects in general. >> will she have to take medication?

>> it's likely if she's being treated for at least in the lower extremities for deep vein thrombosis, we treat people for 3 to 6 months wi s wits with anti-coagulants. >> the good news, based on the statement from her doctors, is that the blood clot in her head did not result in a stroke or neurological damage. they know that already, that there's no stroke, no mini-stroke, no neurological, they can determine that right away? >> the mri can determine if any brain tissue itself has been damaged. >> also to help dissolve this clot, her medical team began treating her with blood thinners. aspirin is a blood thinner. there are others. presumably what would she be taking? >> likely either heparin and then often transition to cumadin, although there's more modern agents. >> she's secretary of state of the united states. how will this impact her in the short term? >> the short term -- >> if she were your patient, for

example? >> it would not affect her function. she can travel. it really just effects sort of heavy physical activity. once your medication is regulated appropriately, you can go about all the normal activities of daily living. >> some people suggested to me, including our own dr. sanjay gupta, if you have a could be cushion, you shouldn't be working that hard, you should let the brain rest. one thing you shouldn't do is testify before the house or the senate on benghazi. >> i'd certainly defer to dr. gupta who is an expert on that. >> when they say, her doctors, she will be released once the medication dose has been established, what does that mean? >> in the instance of cumadin, you give the medicine, then you check certain coagulation perimeters in the blood. the dosage differs widely. it has to be tailored. and the dose adjusted.

to find out what the exact correct dosage is for that patie patient. >> the other good part of the statement, and i'll read it, in all other aspects of her recovery, the secretary is making excellent progress, and we are confident she will make a full recovery. she is in good spirits, engaging with her doctors and the staff and her family. >> all of that indicates she didn't have any clinical change. also reflected in how this was discovered. different when it's discovered as a result of symptoms versus an imaging test. >> if you've had a history of deep vein thrombosis, blood clot, behind the knee for example, and now in the head, do you just got to be careful down the road, right? >> correct. i mean, there's some proclivity for venus thrombosis that has either been defined or undefined. she's certainly at higher risk just because of that history. >> doctor, you've been a big help to us. thank you so much for coming in. we'll take a quick break.

we'll continue to watch the breaking news involving the secretary of state hillary clinton. also, the u.s. is now going over that so-called fiscal cliff. that so-called fiscal cliff. much more on that as well. with so much noise abt health care... i tuned it all out. with unitedhealthcare, i get information that matters... my individual health profile. not random statistics. they even reward me for addressing my health risks. so i'm doing fine... but she's still going to give me a heart attack. we're more than 78,000 people looking out for more than 70 million americans. that's health in numbers. unitedhealthcare.

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you're in "the situation room." two breaking news stories we're following. secretary of state hillary clinton is hospitalized with potentially serious blood clot in her head. doctors have just revealed the location. also, america is just hours away from a massive tax hike and spending cuts, heading over the dreaded fiscal cliff. president obama says an agreement, though, is within sight. republican-led house of representatives, though, will now wait till after the country goes after that fiscal cliff at midnight tonight before coming up with a deal, if, in fact, there is a deal. we want to welcome our viewers in the united states and around the world. i'm wolf blitzer. you're in "the situation room." >> announcer: this is cnn breaking news. >> let's get to the first breaking news story we're following right now. the secretary of state hillary clinton is in the hospital this new year's eve with a potentially serious blood clot which doctors have now revealed is located between her brain and

her skull. let's go straight to cnn's foreign affairs correspondent jill dougherty for the latest. dr. gupta's going to join us momentarily as well. tell us what her doctors have just revealed. >> well, wolf, backing up just a little bit. all day today, the question was, where was that blood clot. because after all, in the statement that came out initially, it was no indication of exactly where it was located. we knew that she had a blood clot as a result of the concussion she cusuffered when e had the flu. now, just a few minutes ago, the doctors who treat secretary clinton issued a statement, a very technical statement, defining precisely where that is located. i'll leave it of course to dr. gupta to explain precisely. essentially, it is a clot in the vein that is located between the skull and the brain behind the

right ear, and the significance of that is, of course, it's not what people were thinking, which might be something, let's say, deep vein thrombosis in her leg, something she's suffered from, or suffered previously in 1998. but they're also saying that other than that, she is making excellent progress and should make a full recovery. so what they're doing right now, wolf, is they're looking at and treating the secretary with blood thinners, but they point out, she won't be released until they figure out exactly the dose she needs. so this is significant of course for the secretary's schedule. she was going to be coming back this week, everyone thought. looking forward to it. ready pretty soon to testify on benghazi and many other theys. now, looks as if this could take a while longer. >> jill, standby it. i want to bring in dr. gupta.

himself a neurosurgeon who knows a lot about blood clots in the head. i want to read the full statement that her two doctors just released. you and i will discuss what we have learned. this is the statement from her doctors, dr. lisa bardik and dr. al bayumi. in the course a routine follow-up mri on sunday, the scan revealed that a right transverse sinus venous thrombosis had formed. this is a clot in the brain, in the vein that is situated in the space between the brain and the right ear. to help dissolve this, her medical team began treating the secretary with blood thinners. in all other aspects of her recovery, the secretary is making excellent prograesprogre. we are confident she will make a full recovery. all right, sanjay, when you heard the whole statement, walk us through what went through

your mind. i think i've just lost dr. gupta. we'll try to re-establish our connection with him. dr. gupta is learning about all of this just as we're learning about it. just to recap right now. the secretary of state, hillary clinton, is at new york, in a new york hospital. she's recovering from only from a blood clot discovered as a result of her routine follow-up mri on sunday, but she had originally gotten very, very ill as a result of severe case of the flu that she had. she became dehydrated. she fainted at one point. and she fell on her head, we are told. and that resulted in a concussion. and that's why she's been out of commission over these past few weeks. didn't testify before the house or the senate on the benghazi report. but now we've just learned as a

result of this mri on sunday that she does have a blood clot in the vein that is situated in the space between her brain and the skull. and it's right behind the right ear. so we're hoping obviously she makes a full recovery as her doctors are expressing confidence that she will. we'll connect with sanjay and we'll get his analysis. in the mean tie, there's another breaking news story we're following right now. including that so-called fiscal cliff. only seven hours until the ball drops for new year's. and seven hours till the united states formally goes over that fiscal cliff. a still combative president obama says an agreement is in sight and the senate leader mitch mcconnell says it's close as well. house republicans have decided they will not vote until after taxes have already gone up. they're supposed to go up after midnight. we have complete coverage of this breaking news story as well. let's begin this hour with our senior congressional

correspondent dana bash. as we've been saying, we are going over the fiscal cliff. >> reporter: technically, that is true. house has decided that there's no point, from the perspective of republicans who run the house, to stay tonight, because the plan over the past two, three days, has been for the senate, which is down the hall behind me, tore vote on any kind of deal first, and then send it to the house. the senate isn't there yet. they're very close. but close doesn't give a bill to the people who need to write it and put it on the floor for votes. so that's the reason why house republicans decided they would just let their members know on new year's eve that it's okay to go home and that they hope, they say, that they will vote tomorrow. yes, technically, there's no question, we are going over the cliff. but it's important to underscore the fact that tomorrow is a federal holiday. and so that means that the markets aren't going to be open to be speaked, which is a big concern here in congress.

and more importantly, they are still hoping that tomorrow they can take the vote that will put things the way they want it, you know, seal the deal. the other political subplot to this, which i think is also very interesting, and we've been reporting on this for a few days, is that when the u.s. does go off the fiscal cliff and everybody's taxes go up, politically, and technically, what everybody can say they voted on are tax cuts because the taxes are already up. as opposed to voting on tax increases. so it's a lot more politically palatable, easier to explain to constituents, and more importantly, their political rivals. i pointed to the senate. that's down here behind me. right on the other side of the rotunda, senate republicans are meeting as we speak. they're getting an update from senate republican leader mitch mcconnell who of course has been the chief negotiator on talks with the vice president. we were told going into this

meeting that there wasn't a deal, that they were just getting an update. perhaps we'll have more of a sense if the senate thinks they can vote tonight. mitch mcconnell wanted to get everything done they agreed to. so far the democrats who are running the senate say not yet. >> if it's more politically palatable for the house republicans to vote on it tomorrow as opposed to today, why don't the senate republicans wait till tomorrow as well? >> that's a great point. something we've been talking about internally in the hours and hours we've been spending walking the halls and standing and waiting. that is certainly a potential political reason to wait. it doesn't seem as though that really is what's driving e senate republicans. it's more of an issue of, i'm told by republicans sources in the house, maybe just a handful of republicans, who could be swayed to vote for it. otherwise, they wouldn't have been able to do it. >> dana, stand by. i'm anxious to see what the

senate, the democratic leadership, the republican leadership, decides to do. will there be a vote on the floor in the coming hours? standby. a lot at stake. what does it mean if the u.s. goes over the fiscal cliff? technically, the u.s. already going over the fiscal cliff because the house is adjourning. tom foreman joining us with more details. what are you seeing? >> even if you don't care about politics, you don't care about the president, the parties, congress, anything else, you should be watching this number back here right now. because if this gets to zero without a deal, every taxpayer in america is going to be affected. or at least we're going to be one giant step closer to them being affected. because taxes will go up for everyone. by how much? let's look at some examples. let's say you make $50,000 a year. i'm talking about for a couple. for a family. it's a little bit different with individuals. still pretty close. if you make $50,000 a year, your

taxes are going up by $2,000. next year and either year after that. unless this thing is fixed somehow. that's a whopping amount of money for people making that little. and that's what's in place if it goes that direction. let's say you make $75,000 a year. that's a pretty good bit more. if you make $75,000 a year, you're going to pay an additional $3,500 in taxes next year. and every year after that. unless something is done about that. so another big increase there for a couple. and now let's look at $250,000. this is the amount of president's been talking about a whole lot. $250,000 a year. your taxes will go up by $8,000 next year if a deal is not struck. now, currently, with the numbers we're talking about, wolf, if they can make this deal where the cutoff for all of this happening is $450,000, then none of this happens. all of these people would keep the current bush era tax cuts.

they would not see these increases. the increases would only kick in for people making more than $450,000 as a couple or more than $400,000 as an individual. they return to the clinton era tax rates of 39% versus 35% now. if there is not a deal, this is what's waiting for virtually all of us out there. which is a whole lot more taxes than we currently pay. one more thing, already in the coming year, you're probably going to see your taxes go up a little bit. this past year, we've all enjoyed a relief from payroll taxes. those have been reduced a little bit. there's no real sign that's going to continue. there's going to be a little bump up. if you make $30,000 a year, you'll pay $50 more per month. you may not see that so much because it will just vanish in your check. that's already coming. it's all the rest of this that

is at stake. whether you care about politics or not, keep watching that number, because that number is tied directly to your wallet, wolf. >> certainly is. all right, tom, good explanation, thank you. as the u.s. moves closer and closer to that fiscal cliff, i'm going to speak with republican senator rand paul about the consequences. we'll talk a closer look at what all of this means for you. plus, hillary clinton spending new year's eve in the hospital in new york city with a potentially serious blood clot in her head. we'll hear from a medical expert. stand by. tyeah, its the galaxy note ii.re great. you can do two things at the same time. you can watch videos and text. or you could watch the earnings report and take notes, like we're supposed to. so... can i get it? yeah. okay either of you put together the earnings report yet? yes, me totally. what? why don't you tackle the next quarter. you eat yet?

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just want to update you on the breaking news we've been covering here in "the situation room." first, the secretary of state hillary clinton, she has now been diagnosed thanked to a routine follow-up mri with a brain clot in the brain, situated in the space between the brain and the skull, right behind the right ear. it did not result in a stoke or neurological damage. this according to her doctors. she's described as being in good spirits, excellent, making excellent progress, but we're watching what's going on. we're going to check in with our own chief medical correspondent dr. sanjay gupta. he's a neurosurgeon, as our viewers know. at least technically speaking, the united states at midnight tonight will go over that fiscal cliff. that's because the house of representatives is now adjourning for the day. will not consider any legislation that may pass the united states senate.

at least till tomorrow. so technically the u.s. is going over the fiscal cliff. although if the senate passes legislation and the house follows suit tomorrow, practically speaking, it won't have any impact. because tomorrow being january 1st, a federal holiday. much more on both of these stories coming up. there's other news we're following. including the former president george h.w. bush. he is now out of intensive care. mary snow is monitoring that. some of the other top stories in "the situation room" right now. what's the latest, mary? >> a spokesman for mr. bush says his condition has improved and he's been moved to a regular hospital room in houston. he's been hospitalized for more than a month. initially with bronchitis. a fever sent him to intensive care. a note from bush's chief of staff assured supporters his condition is not dire and everyone should, please, i'm quoting here, put their hearts back in the closet. venezuelan president hugo chavez is suffering from new complications following cancer

surgery. venezue venezuela's vice president says the president has been battling a respiratory infection and his health is delicate. officials are asking for prayers. the 58-year-old president first announced he had cancer back in 2011. here in the u.s., nine people died following a tour bus crash in oregon. it skidded on ice, crashed through a rail and fell several hundred feet. one official says passengers apparently ejected from the bus as it fell. at least 26 people are injured, including the driver. the bus was returning to van cure from las vegas. two boys are back home after being missing for ten days. the boys were found in austin, texas, when a man watching cnn's coverage of the story recognized their photos and called police. the boy's father faces felony charges of interstate interference with custody. wolf. >> mary, thank you. a newly released senate

report on the attack in benghazi reaches a damning conclusion. namely, that terrorists essentially walked into the compound, set it on fire. the u.s. ambassador and three other americans were killed. our pentagon correspondent chris lawrence is joining us now with the findings. >> this new report spreads the blame for that attack. blaming intel, state, even the pentagon to some degree, saying there was no plan in place to rescue americans there. a new senate report says the state department should have shut down the benghazi mission before the attack that killed four americans. it chastised officials for relying on local militia to guard the front gate. >> the terrorists essentially walked into the compound, virtually unimpeded. >> senators say the state department missed plenty of red flags. a rocket propelled glen nate hit

the red cross in may. a bomb exploded in june. another rpg hit the british ambassador's convoy, prompting the uk to close its mission. senators questioned how much more the state department needed to see before officials realized they didn't have enough security. >> we've got to close this facility because we can't protect american personnel in benghazi. >> reporter: the report also condemned communication failures. like the fact the head of the military's africa command didn't even know about the 2 dozen cia personnel stationed nearby. senators argued if the pentagon had the resources to respond faster, perhaps the military could have helped fight off the second attack on the cia annex. which cape hours after the first. >> we should have sufficient personnel, ships, weapons and other assets available, to be able to respond in the course of several hours.

>> reporter: the report essentially orders intelligence agencies to look beyond terrorist organizations when assessing threats. it recommends intel officials, quote, broaden and deep be their focus in libya and beyond on nascent extremist groups in the region. and perhaps the most damning indictment of the report is the fact that the state department did not follow their own recommendations from previous failure failures, such as installing these so-called man traps, a getting system, that senators argue may have stalled that mob at the front gate and perhaps saved some lives. >> important information for our viewers. much more news coming up, including the latest on the fiscal cliff. one senator accusing democrats of trying to stick it to the rich. we're going to talk with senator

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the united states is going over the fiscal cliff. at least for a short while. the house of representatives deciding in just a little while ago it will not vote and a deal tonight. earlier, president obama sounded slightly optimistic. let's listen to this. >> they are close but they're not there yet. and one thing we can count on with respect to this congress is that if there's even one second left before you have to do what you're supposed to do, they will use that last second. >> let's bring in our chief white house correspondent jessica yellin for the latest on what they're thinking over there at the white house. i assume they're hoping for a deal and that the senate will actually pass it tonight before midnight. >> yes, wolf, and they're hoping for a deal. the sense i'm getting is that action is going to move more over towards the hill where senators mcconnell and senator reid's staff can perhaps start working the remaining details out. there has always been some hope

that the senate can resolve this. but the problem when we go over the cliff, wolf, is that while the democrats have had a challenge wooing republicans to date, once the nation goes over the fiscal cliff, it's the democrats who could revolve. as soon as taxes go up tomorrow and republicans will be racing, democrats assume, will be racing to find a way to bring taxes down, and many democrats are of the opinion that that will give democrats enormous leverage come tomorrow. they'll have more negotiating power come tomorrow. you might see democrats tomorrow be even less willing to sign on to this deal. in 24 hours, democrats might like today's deal even less, wolf. >> it's getting more and more complicated as the delay continues over at the white house. are they at least suggesting that if we go over the cliff tomorrow, that there's still a possibility that both -- let's say the senate doesn't act tonight, that they act sometime tomorrow. they say they can still resolve

this, so for practical purposes, the worst parts of this fiscal cliff won't be really felt by the american public? >> absolutely. the problems are not technical. in terms of putting off the taxation and what has to be done mechanically with the irs, so that americans don't feel a tax pinch, that can be handled. if there's a deal on those spending cuts, that can be handled. if we go over the cliff tonight and have a deal tomorrow or even in a week, that can be handled. the problem is the politics change tomorrow once we've gone over the cliff. it's a whole new ball game that it is today, before. because tomorrow the leverage has shifted. the views look different to both democrats and republicans. and we might just see a different kind of tug-of-war play out in 24 hours, wolf. >> jessica yellin. we'lbe staying in very, very close touch with you. as sn as you hear anything important over there, let us

know. there may be an agreement in hand but at least technically the united states is, in fact, going over the fiscal cliff. there were tough words on capitol hill today. listen to this from senator rand paul of kentucky. >> mark my words, you will raise tax rates and you'll feel good because you went after and you got those rich people because you said you were. you campaigned against rich people. you got enough envy whipped up in the country. you're going to get them. you're going to stick it to those rich people. guess what? you may not get any more revenue. you may not get any more economic growth. but you can say "i stuck it to the rich people." >> senator paul is joining us from capitol hill. tough words from you. i want you to explain in a moment, but let's talk about what's going to happen. are you hearing there will a vote tonight before midnight on the floor of the senate? >> i think there's a very good chance there will a vote tonight. i think they have come to agreement. i think taxes will go up. also spending will go up.

but i've always thought that, really, the crisis of the tax rates going up is not the real crisis in the country. the real crisis is the debt crisis. we're not going to address the debt crisis in any meaningful way. >> how will you vote on the legislation, assuming there's a deal and it comes up tonight? >> i've always said it's a bad idea to raise taxes on anyone. it doesn't really matter whether they're rich, poor, middle class. if you take more money out of the private sector and send it to government, most of what i've seen up here with the money we've received is wasted, inappropriate and counterproductive. i don't think there should be more revenue coming in. i think we should actually have less revenue but a lot less spending because we don't do it very wisely. >> will you hold your note and vote in favor of it or reject it? >> we're going to protect 99% of the people from drowning. they should understand basically

raising taxes is drowning. it's a bad idea. we're going to save 99% of the people. we're going to make those tax rates permanent, which is good. the only thing that kind of confuses me still is that if it's good to protect 99% of peep from a policy akin to drowning, that why is it good, then, to go ahead and throw the 1% overboard and raise the taxes on those? maybe because they can afford it. well, the problem is a lot of us work for rich people. you might sell a fancy car to a rich person. or you might go to -- a rich person buys. i don't think you can punish one segment of the economy and it not have repercussions on the middle class. >> does that mean -- i'm sorry for being obtuse -- are you going to vote yes or no? >> i'm a likely no, because there's a lot of new spending in it also. there's going to be tax increases. which i think are bad for the economy. there's also going to be increases in spending. we have a spending problem up here. instead of trying to restrain

spending, they took entitlements off the table. they've actually added in new spending. they'll be new spending in this bill, which i think is the wrong direction to take the country in. >> you know, of course, if you were in the majority and you voted no and there was a majority in the senate that voted no, millions of people in kentucky would automatically see their taxes, if you make under $400,000 a year as an individual or $450,000 a family, your taxes are going to be going up. that would be painful to 99% of the people out there. >> i agree. you have to realize who's insisting on taxes going up. the president has created this fiscal cliff. he has said that he will not approve keeping the same tax rates for those 99% that people have sympathy for, that i have sympathy for in my state. i'm one of the 99%. i'm not one of the 1%. most of my friends i know are in the 99%. i do want to protect their rates. i want to protect everyone's

rates. the president is the one who has created this fiscal cliff. he insists on raising taxes. it's really his intransigence that endangers those 99%. >> but the president is saying that he is now willing to do what the republicans asked back in 2001, 2003, make those bush tax cuts permanent. he's saying yes, the democrats now have agreed. democrats say they will be permanent. there will be no tax increases for 99%, for people making under $450,000 a year. those will be permanent taxes. you support that. but because 1% are going to have to pay a little more, go from 35% to 39.6%, if you're making more than $450,000 a year, you're going to be willing to see all those millions of other middle class families suffer -- >> it's actually not that. actually, if it were only that bill, wolf, if it were just protecting the 99%, i would vote

for a bill that protected 99%. i want to protect anybody from big government. but the thing is, it's not just that. they're heaping on new spending. so not only are they raising taxes, maybe on a small percentage of people, but a large amount of money, but they're also going to spend more money. it's a spending bill. it has stimulus spending in there. it's going to give a five-year stimulus spending to some of the president's plans from '09. so i object to increasing spending and increasing taxes. that's really the deal killer for me. if it were just tax rates and you told me i had the choice of protecting 99%, i would vote for -- when the house bill came up that would have protected 99%, i would have voted for that because it didn't have new spending. this has new spending which i think is taking the country in the wrong direction. >> put on your political punditry hat for a moment. if there is a vote tonight, you

agree it will pass the senate despite the objection? >> i think it will pass with bipartisan support in the senate. the house is a little more unpredictable. i think it will end up, once democrats sign on board in the house, it will pass as well. it probably needs both bodies in order to pass. i personally just don't like it because i think we're kicking the can down the road and we aren't really addressing the real crisis. which really, to tell you the truth, was not the fiscal cliff, it's a debt crisis, where we're spending over $1 trillion each year we don't have. where we now owe more per person than they do in greece. by some measurements, we're worse off than greece now. this deal will do nothing to help reduce the deficit. >> senator paul, happy new year to you, to everyone out there. thanks very much for joining us. >> thank you, wolf. >> please pass along my best regards to your dad as well. we have more details emerging on the secretary of state hillary clinton's

condition. we'll speak with dr. gupta on the blood clot that has just been discovered between her skull and her brain. excuse me, sir i'm gonna have to ask you to power down your little word game. i think your friends will understand. oh no, it's actually my geico app...see? ...i just uh paid my bill. did you really? from the plane? yeah, i can manage my policy, get roadside assistance, pretty much access geico 24/7. sounds a little too good to be true sir. i'll believe that when pigs fly. ok, did she seriously just say that?

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we're following the breaking news about the secretary of state hillary clinton. diagnosed as having a blood clot in the brain. situated in the space between the brain and her skull, behind her right ear. her doctors said it was discovered as a result of a routine follow-up mri on sunday. they insist she is making excellent progress. they say we are confident she will make a full recovery. let's bring in our chief medical

correspondent dr. sanjay gupta. he's joining us by phone. when i heard, yesterday, that she had a blood clot, i assumed it was in her leg, deep vein thrombosis. maybe some place else. i always assumed it would be much more serious if it was in her head. you're a neurosurgeon. when you read the statement her doctors put out just a little while ago, what did you think? >> yes, i agree with you. it was a little surprising that they didn't just come right out and say that. what i think the most concerning thing was and what people sort of were worried about the most was the fact that -- the idea this could be a blood clot actually pushing on her brain. you think a head injury. you have blood that's collecting, pushing on the brain. that's not what this is. and we had a pretty good idea it wasn't. because you wouldn't treat something like that with blood thinners. what this is, is a blood clot in a vein. it's not a vein in her leg. but, rather, one of the veins

that drains blood from her brain. so this is -- it is more concerning. they were very careful with how they worded this, wolf. to say, look, there's no evidence that she has had a stroke, any neurological damage. but that's exactly what you would be concerned about. this is certainly from a neurosurgeon's perspective a more urgent matter. it's not a mass or collection of blood pushing on the brain. this is something you want to address fairly quickly. >> of course. obviously, that goes without saying. they got to do something. how do you address it? when you say they're giving her blood thinners, what kind of blood thinners is she receiving? and how long will she need to be on this? especially given the fact she has a history of this problem. behind her knee, she had a blood clot. >> let me put it to you like this. when you think about the blood glow to the brain, there's two things happening simultaneously. there's blood flowing to the

brain and there's blood flowing away from the brain. here's the concern. if one of the areas that controls the blood flowing away from the brain becomes blocked, then the blood builds up within the brain, within the stall. and that's what could possibly cause a stroke. in this case, the particular vein they're talking about, from the description it sounds like there's enough other areas for the blood to travel. so that the blood is not building up in the brain. but still, wolf, to your point, you have to take care of that problem by giving someone, in this case the secretary of state, blood thinners. you essentially start to break up the clot that is sitting within that blood vessel. usually takes -- it can take a few months. but after that, the clot, you know, will be gone and the blood flow will be restored to normal. she's had a history blood clots in the past. in 1998, i was working the white

house that time, so she has this propensity to develop blood clots. this may be another indication of that. again, this is -- you want to make sure that she's not developing any pressure inside the skull as a result of this blood clot in that particular vein. >> they'll monitor it. i know you'll be with us at the top of the hour. i assume this blood clot in her head resulted from the concussion she suffered after she fainted a few weeks ago. >> yeah, you know, it's interesting, it's not a very typical thing, to be frank. you don't typically see blood clots forming in veins after this sort of concussion. i think we may be getting more details, as you point out, precisely as to why this occurred. but one of the things, again, is she is somebody who has formed these blood clots before. in the previous instance, it was in her legs. but she may be, you know, there are certain people who are just more likely to develop blood

clots. i'm sure this is something her doctors are thinking about. checking various parameters within her blood. to see, you know, does she clot more vigorously than normal. that in combination with the brain injury or concussion could have led to this. but, you know, when i -- like you, wolf, when i was hearing all this, you and i were together at the very start when we first heard about her concussi concussion. there were certain pieces just sort of missing. i think there may still be some details that are forthcoming. >> i know we'll be getting more information. you'll be joining us. stand by for that. hillary clinton now diagnosed with a blood clot situated between her brain and her skull, behind her right ear. more on this story coming up. also, the house of representatives won't, won't be voting tonight. so what will it mean specifically when the united states at midnight tonight goes over that fiscal cliff? we're going in depth. that's next.

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so what will it mean if the united states does go over the fiscal cliff, even for a day or two? joining us now is greg ip, the u.s. economics editor for "the

economist" magazine, ali velshi joining us as well from new york. how dangerous is this situation? the united states going over the fiscal cliff, at least technically, for a day, maybe longer. >> it's probably not going to be a big deal. presumably, the legislation that will get passed will be retroactive. it will be retroactively put back to where they were. since people weren't going to feel it since they got their first paycheck in january, they may never know anything happened. it's kind of a mixed picture. as markets get a look at this deal, a few things become apparent. number one, although we've removed the single biggest piece of the fiscal cliff, the possible tax increase on the middle class, we still got the sequester to deal with, $110 billion a year, the payroll tax cut goes away, that's worth $1,000 per family in the coming year. that suggests there's still a risk -- >> how many days before there is a danger point, before they -- the u.s. will really potentially go into another recession? >> well, if the other pieces of

the fiscal cliff are not fixed, that could happen in the next month or two, especially as the realization begins to dawn, that these other things haven't been dealt with. we'll see defense contractors issuing layoff notices. the federal government furloughing workers. and the whole threat of the debt ceiling being hit in two months from now. and the possible loss of confidence that entails. >> ali, you got a question for greg too. >> yes, first thing, i want to correct something that rand paul said something. i'm glad greg is there. rand paul made a ridiculous statement about how the u.s. spends more per -- has more debt per capita than greece. let me explain to everybody. the u.s. is the eighth highest per capita production in the world. okay. it's the richest country in the world. it's eighth highest. greece is number 34. so we have more of everything than greece does. so that remarkable fearmongering about debt, which republicans are putting in, is what part of the problem is. greg, there -- the debt concern in america is real.

it is real. it is nowhere near as real as people like rand paul need to make it sound. greece can't issue its own bonds. america can. there is about zero chance -- in fact, i have more chance of growing hair than the u.s. has of defaulting on its debt. i think this is ridiculous and we have to point out that a lot of these republicans, particularly tea party republicans, are making these statements that are simply not true. the u.s. stands no chance of defaulting on its debt anytime in your or my lifetime. >> i think i agree with you on almost all of that. i think it's worth pointing out there is a point in here the republicans are raising, which is a good one. if the deal goes through, as it's been written, the impact on long-term deficits is negligible. the debt is still on an unsustainable rising path. we've made no meaningful reforms to the entitlement programs. if i have a concern, it's that everybody knows what we need is a deal that smooths us out of too much austerity in the near term so we don't go back to recession. the deals with the debt over the long term.

i worry we're getting the opposite. a deal that squeezes us tighter in the next six months when we're least able to prepare for it but does nothing about that long-term debt picture. >> ali, first to you, why do you assume that the united states would not default? what happens in february or march if the house of representatives, if there aren't 218 votes to raise the debt ceiling? >> right. so that would be a technical default. the idea that by law the united states can't pay its bills because we've hit the debt limit is very different from the u.s. being unable to pay its bills. it may be legally locked in to not paying its bill because we don't increase the debt limit. which is, you know, the debt's limit another discussion. there's virtually no other normal country in the world that has bon it's a bad way of doing business because we divorce our -- how much we can spend from our actually legislation. it would be much more sensible to have the two connected to each other. i know that's something democrats and republicans share a view on. this is just an akronism. it's a bad way of doing business.

you're right, we could technically, the treasury could be bound to not pay bills. but there's no chance the u.s. will not be able to afford its ability to pay bills. there's just so much nonsense in the debate. if we got past the nonsense and realized what we need to focus on is long-term debt reduction, short-term economic creation and job creation, that would be our answer. but we get pushed into our corners and don't say things that make sense, that's the problem. >> if the u.s. does technically default, that u.s. credit rating would presumably go down again, severe repercussions as a result. >> number one, it's possible we could hit the debt ceiling and rather than stop paying interest on the bonds, we stop paying social security checks, we stop paying the soldiers' salaries, all those other bills -- >> none of that's going to happen -- >> but, we will see. >> social security, soldiers, they're worries about is accidents can happen. and you might miss a payment. the thing that's rather worrisome about that sort of

default, you can't retroactively fix it. you can't retroactively fix a default. >> thanks very much. ali, don't go too far away. a united states ambassador now has a price on his head. we have the latest on the al qaeda plot that also targets u.s. service members. stay with us. [ ship horn blows ] no, no, no! stop! humans. one day we're coming up with the theory of relativity, the next... not so much.

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al qaeda's branch in yemen is now putting a price on the head of the united states ambassador. they're offering several pounds of gold for his death. and another reward for anyone who kills a united states service member. brian todd has this report. >> reporter: less than four months after the killing of u.s. ambassador chris stevens in benghazi, libya, word of a specific threat to another american envoy in another arab country where al qaeda is dangerously strong. a bounty of $160,000 worth of gold has been placed on gerald fi firestein. according to site intelligence group, it was announced in audio clips and screen grabs posted by militants. we can't verify the clip's

authenticity, but the u.s. and yemen governments are taking them seriously. also offering $23,000 for the killing of an american soldier in yemen. those militants may be part of al qaeda in yemen. >> they've been looking for a way to hit the united states whether the u.s. embassy in yemen which they attacked in 2008. or carrying out more attacks in the united states. >> reporter: this is the same group that came close to detonating the a bomb in the underwear of a militant in a plane bound for detroit. it tried again this year to bomb a plane bound for the u.s. it's also not the first time al qaeda or an affiliate has offered gold for the killing of a prominent american. >> the example that leaps to mind is paul bremer who was the most important american non-military official in iraq during the george w. bush

administration. and osama bin laden himself offered substantial gold reward basically for his death. >> reporter: no one got to bremer. the odds of an assassination this time? a yemeni official says security has been stepped up. the ambassador may not need to change his security detail so much. >> had this mini green zone in which all the people at the embassy live within a secure corridor there right next to the embassy and so they travel from this secure housing location to the embassy and back and forth. and they don't really get out which makes them very, very difficult targets. >> but one deadly asset that al qaeda in yemen has may tip the balance. and it's this man. al asiri. the master bomb maker. intelligence officials say he was behind the christmas day attack three years ago and the printer bomb plot.

he once placed a bomb inside the body of his own brother which came close to killing a top saudi official. he's still at large and still a dangerous man in yemen. >> yes. good security of the ambassador in yemen. i bet it's been tightened a bit. thanks for that report. with the u.s. poised to head over the fiscal cliff, people are still finding reasons to celebrate in times square. ordinary rubs don't always work on my arthritis.

try capzasin-hp. it penetrates deep to block pain signals for hours of relief. capzasin-hp. take the pain out of arthritis. although washington may be focused on the fiscal cliff, people in new york are getting ready to party. they're piling into times square. poppy harlow is in the middle of it. what's it look now? >> reporter: i'm going to let you listen for yourself. how excited are you guys? they have come here from kuwait, australia, london, japan, ontario, houston to celebrate this momentous occasion. behind me the ball is going to drop. 12,000 pounds, 32,000 light bulbs, 2,000 pounds of confetti is going to fall here on times square. they're counting down, practicing the ball right now.

obviously very tight security here tonight for the celebration of the year. >> it's midnight now in berlin. they're celebrating. we've got live pictures. let's listen in for a moment. >> happy new year! ♪

>> it's 2013 in berlin. you see the celebrations just beginning over there. much more coming up here in the "situation room." and happening now breaking news. the united states will, in fact, go over the fiscal cliff at midnight. can the worst still be averted? more breaking news, doctors reveal the dangerous location of secretary of state hillary clinton's blood clot. plus the countdown to 2013. we'll be going to lon done and key west. we want to welcome our viewers in the united states and around the world. i'm wolfe blitzer. you're in "the situation room." right now we're following two breaking news stories. we now know the united states will in fact go over the fiscal cliff at midnight tonight.

the senate is closing in on a deal, but the house of representatives has said it will not vote tonight. will possibly take up action tomorrow. and the other breaking news story, new details of secretary of state hillary clinton's blood clot. doctors are now revealing it's located in a vein between her brain and her skull. they say it did not result in a stroke or any neurological damage. our foreign affairs correspondent jill dougherty is joining us now. dr. sanjay gupta is also standing by. but let's start with you, jill. what else do we know about the secretary's condition right now? >> well, wolf, this came -- this announcement by the doctors who treat secretary clinton came at the end of a long day of speculation about where precisely that blood clot is located. there was speculation it might have been in her leg, but the state department was not saying. finally at the end of the day, they released the statement.

i will read part to you. the doctors of secretary clinton say it's a clot in the vein that's situated in the space between the brain and the skull behind the right ear. it did not result in a stroke or neurological damage. to help dissolve this clot, they began treating the secretary with blood thinners. she will be released once the medication dose has been established. and then they add, in all other aspects of her recovery, the secretary is making excellent progress and we are confident she will make a full recovery. she is in good spirits, engaging with her doctors, her family, and her staff. so wolf, you would have to say knowing that it is in the head, even in this area between the brain and the skull, it does sound more serious. however, they are saying that it would appear -- at least our experts are saying there is no

bleeding within the brain. that is the important thing. so as they try to titrate these anticoagulants, they will try to figure how much she needs and hopefully she can be released. >> are they saying how long they suspect she will have to remain at the hospital? >> they are not saying that. i think really -- and this is probably more a doctor's question. but they would have to figure out how much of the blood thinner she needs. then as they give her the proper dose, they will work on trying to shrink that. and then she could go about her work. it is worrisome, but it is good news she is awake and talking with people. >> we wish her the best. jill, stand by. we have two doctors who can help us better appreciate what's going on. joining us in the studio is dr. david deaton. also joining us our

correspondent dr. sanjay gupta who is a neurosurgeon. sanjay, let me start off with you. in assessing this statement by her two doctors, what's the bottom line as far as your concern? a lot of americans all over the world are very worried about the secretary of state. >> well, you know, the specific issue here is what is known as a cerebral vein thrombosis. the veins take the blood away from the brain and send it to the brain. the concern is if the blood can't believe the brain, it will start to build up and that will cause pressure. that's what we always worry about and think about in this particular instance as you just heard from jill, she's talking. she seems very alert. those are all obviously good signs. i will point out, wolf, they

performed an mri scan on her on a sunday to better figure out what was better going on. usually that's done especially over a weekend like that because somebody may have been having some problems. maybe even headaches or something that just were persistent and warranted another mri scan. and that's how they found this clot. what it is not, this is not a blood collection pushing on the brain in some way. this instead is a blood clot within a blood vessel that happens to be around the brain. let me show you for a second if i can. i have a model here. we know this is on the right side of her brain, but i'm showing you on the left side of the model here. if you take out this hemisphere of the brain, but this area of blue here, this is one of those veins that takes blood away from the brain. the vein in question for the secretary of state is around this area here. they say there is a clot in that

particular vein. that's what's led to this particular mri and treatment she's getting. >> let's bring dr. deaton into this conversation. we assume -- correct me if i'm wrong -- this blood clot in her head resulted from the concussion she suffered after she faint snd. >> well, you would presume that and be correct that the trauma involved in the fall that she had and the resulting concussion has now resulted in this thrombosis intervenous system. >> sanjay, do you agree? >> yeah. keep in mind in particular we know from the secretary of state's history, she has had a blood clot before in one of the veins in her body. in that case it was in her leg. so whether or not she in addition to the trauma is she just one of these people who's more likely to form blood clots? we don't know the answer to that. >> some people have been tweeting me that if you do have

a history of blood clots in the leg and now in the head, you're going to be on medication for the rest of your life. is that true? >> well, there's a whole broad category of problems with the coagulation. i believe that's what dr. gupta was referring to. and if you are diagnosed with one of those conditions, then the variety of therapies often involves life long anticoagulation. >> this routine follow-up mri she had on sunday, it showed that there was no stroke, no neurological damage. how reliable is that? >> it's pretty reliable. i mean, even more reliable is to do a very good neurological exam. you'd be able to tell if someone had had any of those problems. i want to point out this isn't to raise alarm or anything. but on a sunday at the end of the year the secretary of state gets an mri, my guess is she was having troubles. maybe she was having headaches. it was a few weeks ago she

initially had that concussion. and there's no absolute fixed time frame in terms of when people start to feel better and feel back to 100%. but something warranted an mri on her. and my guess is she was still having a bit of trouble. not a stroke. they've been very clear on that. no neurological impairment. they've been clear on that. but enough to get a test. >> i assume both of you -- and let me ask both of you the question and then we'll wrap up. first to you dr. deaton, do you think she's be in any position to testify over the next few weeks? >> there's no indication she's had neurological symptoms whatsoever. if she's simply in the hospital for the anti-coagulation medication. >> then she would be ready. but sanjay you pointed out that if someone suffers a concussion, it's best to rest the brain, if you will, and not engage in that type of activity. >> again, there's no hard and

fast rules here, but i'd say two things. first of all, a concussion is a brain injury. that's a better way to describe it. and in her case it sounded like it was a significant enough concussion where they wanted her to be at what they call brain rest for awhile. really not doing anything with the brain. but i think more to the recent events, wolf, she probably had some symptoms maybe persistent headaches or something that warranted this mri. so she's not 100%, i think. probably as a result of all this. the blood thinning medication can be dealt with pretty quickly, but i think in terms of her overall function, i think it's probably going to be a bit of recovery still. >> her doctors say she's making excellent progress. the doctors say she is in good spirits engaging with her doctors, family, and staff. i think i speak for everyone here in the "situation room" and all the viewers around the world, we wish her only a speedy recovery and a very, very happy new year. dr. deaton thanks for coming in.

sanjay, you stick around. we'll continue this with you. other breaking news we're following including the fiscal cliff, less than only six hours away. we now know the u.s. will, in fact, go over the edge. we have details. our eleventh hour deal making. stand by. so what happens next on the political drama that's unfolding here in washington, d.c. tyeah, its the galaxy note ii.re great. you can do two things at the same time. you can watch videos and text. or you could watch the earnings report and take notes, like we're supposed to. so... can i get it? yeah. okay either of you put together the earnings report yet? yes, me totally. what? why don't you tackle the next quarter. you eat yet? polynesian? pu pu platter? yup! keep up the good work. i will keep up the good work. do more with the new samsung galaxy note ii.

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and it appears the united states will, in fact, go over it at midnight tonight. negotiations continue in the senate and although a deal is said to be close, the house of representatives has already announced it will not be voting on any deal tonight. but may take action tomorrow to undo the damage. here's how president obama assessed the situation. >> today it appears that an agreement to prevent this new year's tax hike is within sight. but it's not done. there are still issues left to resolve. but we're hopeful that congress can get it done. but it's not done. >> our chief white house correspondent jessica yellin is joining us as is dana bash. they're both working the story for us. jessica, let's go to you first. is the white house still optimistic? the president seemed pretty upbeat hours ago. >> yes, the white house is

optimistic that a deal will come together. perhaps even as soon as tonight. perhaps a deal that could be voted on in the senate tonight. there's a sense here that i'm picking up that momentum would be on their side. that they need to capitalize -- the senate needs to capitalize on the pressure of the ticking clock as we approach new year's day to move this thing forward. and that the more they can use this, the more they can actually encourage/pressure democrats to come along and sign on to this thing and get this over the finish line before we move into a new year and start the potential for a battle again as we pass the threshold and the politics become different after the fiscal cliff is behind us. >> is there one or two sticking points out there we should know about? what's the latest? >> so as i understand it, right now is obviously how is this debate over the sequester. apparently there's an agreement

on the time frame or roughly for a few month's delay in the sequester but how to pay for it. there's disagreement on how to pay for the doctor fix reimbursing providers who take medicare. apparently republicans are asking for some cuts from obama care. and then there's something to do with how the estate tax would be changed. that is how democrats are characterizing this. these are terms that are not acceptable to democrats. and so that's where they're resisting. i think if we heard this from a republican, we'd get a different take. republicans' concern is that there should be bigger, more details how everything's paid for. and so that's where the tug of war still lies. but again, some optimism that this will be resolved in the coming hours. >> all right. you and i will be working late into the night, i suspect. let's go to capitol hill to join -- joining us is dana bash who's going to be working late into the night as well. do we know if the senate is going to vote tonight for sure,

dana. >> well, we just -- we're standing just down the hall of the meeting of senate republicans. many of them came out optimistic there will be a vote tonight. senator kay bailey hutchison and others say that do expect to have votes late into e the night. the problem, wolf, as you well know republicans don't run the senate. therefore they don't set the schedule. democrats do. and the democratic leadership is not saying that they're going to vote tonight. both sides do appear to be closer. jessica just laid out one of the biggest sticking points that has been left which is the idea of the mandatory spending cuts. republicans coming out of this meeting said that there is agreement to delay the sequester for two months and replace it with a combination of other spending cuts and money from the new tax revenue. but as we were getting that information from republicans, we heard from a democratic source saying that they have now an issue with the way the estate

tax portion of this is done. so it's almost like whack a mole. but one thing i will tell you is there does appear to be a lot more optimism about a deal and a lot maybe even desire to get a deal done at the white house than we are seeing and hearing from democrats here. maybe desire is too strong, but there is more optimism there than here. perhaps simply because they write the legislation here. or political reasons as well. >> you remember, dana -- of course you remember. that the president said that if there can be no deal, he would hope that harry reid would at least put his plan, whatever you want to call xyz, out there and have one vote on a really scaled back version to avert a tax increase for 98% or 99% of the american people. >> right. that is still in their back pocket. but it doesn't seem like that is going to happen, because on the big issue of taxes, both the senate republican leader mitch

mcconnell and democrats are telling us they have a deal on that. and that deal is for households making more than $450,000, below that their tax cuts will stay in place. everybody else, it will go up. so that is a very big agreement that the two sides made. given that, it's hard to imagine them going back to plan xyz. as i'm talking to you, i'm getting word also that other republican leaders, senator john kyle, for example, is making it clear to reporters behind me he believes there'll be votes tonight. because according to democrats here there's another issue with regard to the estate tax o portion of the bill. we have to wait and see what gets worked up. >> we'll be watching, you and i and all of our team will be watching every step of the way. because of the ramifications, the stakes are enormous down there. not only for the united states but for people watching all over the world. if the u.s. economy goes into

recession once again, people will be suffering in europe and asia and africa, south america as well. so stand by. stay with us for complete coverage. senator john mccain told me just a little while ago even if a fiscal cliff deal is done, the battle between the white house and congressional republicans is far from over. >> i think there's going to be a whole new field of battle when the debt ceiling rolls around. >> all right. let's dig a little bit deeper with ryan lizza. he's washington correspondent for the new yorker magazine. also ali velshi our chief correspondent is joining us. deal or no deal? >> looks like from what dana is reporting, that a deal is in sight. republicans are saying they're going to have a vote tonight. looks like a deal is done. >> with the senate. >> we don't know what the house will do.

and the last time john boehner tried to put something on the floor, his caucus rebelled. he'd have to let the house vote its will. >> but you agree if the president of the united states supports it, most of the house democrats will support it. so you don't need a majority of the republicans, you need a few republicans to get to that magic number of 218. >> exactly. obama and pelosi seem to have a firm grasp on the house democrats. it's just a matter of getting it to a vote in the house. what's happened over the course of the day is we had this seesaw. when details leak out, that angers democrats, they go back to the negotiating room and fight for a bit more. then some details leaked out that there weren't enough spending cuts. that angered republicans. obama's comments angered republicans. so i think they're back in the negotiating room, republicans pushing harder on the spending cuts side. that's what we've seen through the the day. >> ali, based on my years of

covering washington, the longer there's no final vote in the senate and house, the more likely this whole thing could collapse. >> yeah. gives everybody a chance to think it through. this is kind of the contradiction in this whole thing. when you think back to the debt ceiling deal, you think back to the government shutdown. these are all eleventh hour deals. we've become accustomed to doing things before the deadline. there's some sense of urgency. what you've heard throughout the day is we don't like that the white house, that they're moving toward a higher threshold on taxes. the longer it doesn't get done, the more people say let's take a harder line yet. i like you wolf, we're going to sit here until it happens. i'm not sure it's going to happen. there are still some remarkable philosophical differences. a great deal of misinformation about the economic effect of some of these things. whether it's the tax increases

on the wealthy or the spending cuts. there's a lot being based on emotion right now and not necessarily economic fact. the longer it goes, the more i worry about it. >> i'm always worried. dana bash is still with us. what are you learning? >> while i was talking to you, i got a message, an e-mail saying -- from a senior democratic source saying the goal is tonight. the goal is to have a vote in the senate tonight. we were talking about how republicans were saying that but don't run the senate. we can't call it a deal, but they're working towards that. >> what would be the big deal if the vote in the senate is delayed until tomorrow morning? >> you know, technically not much. i think psychologically, the fact that we are all talking about the house not being able to vote tonight as us technically going over the fiscal cliff is something that

they recognized in the senate. and i also think that for senate republicans and even some democrats, it's not as much of an issue to be able to take home politically the idea of voting for a tax cut as opposed to a tax increase which the house would be doing tomorrow. also just the idea of momentum. they've got the momentum. they don't want to blow it if they've got it. >> you know this well. a lot of democrats especially liberal democrats, they're not happy that the president raised that $250,000 threshold to $450,000 since he had spoken of the $250,000 figure for months and months and months. ran his re-election campaign on it. >> and won. and there was a rebellion today among democrats in the morning. tom harken went on the senator floor and said he did not like the deal that was emerging. i don't know if that caused them to go back into the room and change some things or if some democrats just didn't know what the details were. but it took a lot of convincing

by the white house, there were conference calls today to sway groups and defend the deal that obama was cutting. i think that's why you saw obama make that statement. >> he was speaking to democrats. >> he was speaking to the base saying i am on the precipice of getting republicans to vote for a tax increase. they never, ever do that. give me some credit here. now, he did move his red line on the threshold for upper income tax hikes. he moved it from $250,000 to $400,000. the revenue is important. whether you get that from income tax rates or other taxes, it doesn't matter. the key is the overall revenue. and this whole battle here is about a revenue piece. >> you reduce the revenue from about $800 billion over ten years to what? $500 billion or something like that? >> that's right.

or what they've done on limiting the deductions. that's another part of this that's going to raise more money. it's not going to make up for all that's lost on the changing the threshold, but there are other pieces on this. >> we're going to ask you to stick around. thank you very much. ali of course is with us throughout these hours of the night. dana bash is with us. jessica yellin. we're watching what's happening with the fiscal cliff. we'll have more on this. robert rice and the antitax activists, grover norquist. they are both here for what promises to be a spirited debate coming up in just a for minutes. again? it's embarrassing it's embarrassing! we can see you carl. we can totally see you. come on you're better than this...all that prowling around. yeah, you're the king of the jungle. have you thought about going vegan carl? hahaha!! you know folks who save hundreds of dollars by switching to geico sure are happy. how happy are they jimmy? happier than antelope with night-vision goggles.

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so with the u.s. now going over the fiscal cliff at midnight, drastic across the board spending cuts will automatically take effect the following day. that would be january 2nd. tom foreman is joining us now with a closer look at the impact. lay this out for us, tom. >> in our virtual studio here is we set up everything the government spends money on. the treasury, defense department, energy department. all of these things here. and right back there on the score board you see the fundamental problem. last year we took in $2.3

trillion in revenue but spent $3.6 trillion. and this whole process has been aimed at dealing with that deficit. because neither party could really come up with a decision on what they were going to agree on on what to cut spending. what they said is if we don't have a deal by january 2nd, sequestration will set in. what is that? that's essentially a 10% cut across the board to everything out here and everyone has to deal with it the best way they can. now, i want to point out something here. there's a big difference in the size of these departments. for example, housing or personnel or energy are really quite small. you can cut them dramatically and not have nearly the impact you would have as if you hit bigger departments. some of these programs are also somewhat protected by law. sop they can't all be hit the same way. and the truth is a lot of people aren't sure what the result will be if full sequestration sets

in. but, we do know that it could have real impact on a lot of real americans out here. for example, many federal workers could wind up furloughed if this happened. there have been warnings to tell workers they may not work at the start of the year if this goes on. obviously that impacts them. but it could impact the economy too. beyond that another big impact on the economy, what about job loss in the private sector? think about all the companies out there that supply services or goods to the federal government? if sequestration sets in, many of them will not have the business they had before. that's going to have another big impact. and even if you don't work for the government or work for the government in some fashion in private industry, you still may be effected because of huge delays that could come into the system. and in this case, time really is money. you're talking about delays getting on airplanes because there may not be enough people to check you in. delays on your tax returns because there may not be enough people in the irs to check you

out. there could be all sorts of issues that could ripple through the entire economy out here. so those are the real impacts that all of us could feel from sequestration. the problem, though, for republicans to say yes. but the reason sequestration was put into effect was the score board in the first place. the fact we're spending more than we have and some day we have to bite the bullet and deal with it. that, sol wolf, is the newest and latest and sharpest battle front on the fiscal cliff. >> thanks very much. let's get a little bit more on the fiscal cliff. joining us two guests. the former clinton laborer robert reich. he's professor at university of california and berkeley and the author of the book "beyond outrage: what has gone wrong with our economy and our democracy and how to fix it." also joining us, grover norquist, he's president of americans for tax reform. grover, let me start with you. if the senate votes tonight on this new legislation, the new agreement which will keep the

tax rates for everyone earning under $450,000 a year, those senators who vote in favor of it, are they violating the commitment, the tax pledge those republicans largely made to your organization? >> well, they didn't make the commitment to my organization. they made it to the people of their state. and that's important to keep in mind. and right now as explained, like with plan "b" that boehner put forth, this makes permanent the tax cut for many, many americans. >> for 98%. >> 98% of them. but 84% -- >> so is this a violation of the pledge? >> no, it is not. >> so republican senator x votes in favor of the agreement tonight, he or she is not violating the pledge? >> no. all the republicans who voted in the past to make the tax cuts permanent, all the republicans, all the pledge takers -- >> so you're giving your blessings to the republicans, go ahead and support the deal. >> well, not having read it all, i'm not endorsing it.

but right now as explained, it doesn't violate the pledge. now, we need to go back and at the end of the day make sure the tax cuts are made permanent for everybody, but that's a fight for the weeks and months to come. this is progress making 84% of the bush tax cuts permanent. the democrats all oppose the bush tax cuts. now we're making permanent. >> if you were a senator, you'd vote for it? >> yes. >> all right. let's bring in professor reich. you don't like this because of the $450,000 the threshold. is that right? >> there's several problems. it is a $450,000 flethreshold. it makes the bush tax cuts permanent. that doesn't generate much revenue. the top 2% really are not going to be contributing very much to deficit reduction. that means the lions share of the burden of deficit reduction falls on the middle class.

either in terms of higher taxes down the road or fewer government services. also i'm concerned that nothing in the deal deals with the ceiling, the debt ceiling. i mean, the republicans a month from now or two months from now after the treasury has exhausted all of the possibilities for dealing with the debt ceiling, they could just do what they did in the summer of 2011. >> let me just press you, professor. if you were a senator, grover norquist says he would vote for the bill if it comes up on the senate floor tonight. how would you vote if you were a senator? >> i would vote against it. >> really? even though the president of the united states wants this deal done. >> you know, because the people of my state would not want it done. and i think no deal is actually better than a bad deal. i would go over the fiscal cliff and then introduce legislation to provide middle class tax cuts and restore a lot of the

spending cuts and the republicans would have to go along with it. i don't want to make the bush tax cut permanent up to $450,000. and also i want the republicans to deal and make a deal on the ceiling, on the debt ceiling. >> here's something unusual. grover norquist, respond. you support if the deal happens tonight, you would go with the president. robert reich, a democrat would go against the president. but you'd be with barack obama. >> barack and i are centrists. we are moving forward. some people on the hard left are opposed to this proposal. but yes. this is progress in terms of making much of the bush tax cut permanent. is it enough? no. does it do anything on spending? no. but that's what the next four years are going to be. that's what robert reich is complaining about. the next four years will be clawing back the overspending of the obama years. and now we need to get the spending down. the problem we have is too much spending. not too little taxes.

now we turn our attention to spending cuts. >> i'll let you respond to that. go ahead. >> yeah. i think on the spending side, the big problem is health care costs that are rising rapidly. and the problem there is that we are not using the government's clout, bargaining clout under medicare and medicaid about 50% -- almost 50% of americans have some sort of health care coverage by government, but we're not using that bargaining clout to keep a lid on provider costs. and to make the system for efficient. make it into a fee for healthy outcome system in terms of -- rather than a fee for service system. it is not right now a budget deficit problem. in fact, right now the government ought to be spending more in terms of getting people employed and investing in infrastructure and education. >> they are in recess until noon tomorrow. january 1st. then they will come back. we do expect according to dana

bash our correspondent there, there will be a vote in the senate on the senate floor some time tonight. looking ahead to tomorrow, what advice do you have for republican house members who will consider -- assuming it passes the senate tonight -- what's your advice for them tomorrow? >> this is the beginning of the game. take the 84% of your winnings off the table. we spent 12 years getting the democrats to seed those tax cuts to the american people. take them off the table. then we go back and argue about making the tax cuts permanent for everyone. and we engage in a four-year, three yards and a cloud of dust fight to cut spending every day using the tools of the debt ceiling power and the fact that they have to come and ask the house and the senate for money every month or so. that's where we'll have to have a continuing fight.

this is not easy. >> wolf -- >> let me -- i'll let you respond. but if it passes the senate tonight, it's on the house of representatives floor tomorrow. you would tell liberal democrats in the house of representatives to reject it? >> well, i'd say to them to amend it, at the very least make sure that the republicans can't use the debt ceiling in exactly the way that grover norquist is saying that they will use it. you see, by not including the debt ceiling agreement, by allowing the republicans to use a threat of not agreeing to raise the debt ceiling once again we're just back to battle. i mean, the battle never ends. we are going to see exactly the same set of tactical and strategic complexities we've seen up until right now. we got to at least settle the debt ceiling for the next year or two or more. >> well, as you know mr. secretary, the president tried

to get that debt ceiling issue solved. he could not achieve that. it's going to be hanging out there as you correctly point out in february or march. and the republicans will have some increased leverage. i want both of you to stick around. robert reich and grover norquist. we're getting new word now on the vice president of the united states, joe biden. what will he do if there's a senate vote tonight? stand by. where is flo? anybody know where flo is? are you flo? yes. is this the thing you gave my husband? well, yeah, yes. the "name your price" tool. you tell us the price you want to pay, and we give you a range of options to choose from. careful, though -- that kind of power can go to your head. that explains a lot. yo, buddy! i got this. gimme one, gimme one, gimme one! the power of the "name your price" tool. only from progressive. aww man. [ male announcer ] returns are easy with free pickup

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and then treats day after day... block the acid with prilosec otc and don't get heartburn in the first place! [ male announcer ] one pill each morning. 24 hours. zero heartburn. we're just getting word that the vice president of the united states joe biden who happens to be the president of the senate, he goes up there if there's a need to break a tie. he will be going to capitol hill if there's a deal. and apparently they're getting

very, very close to a deal. democratic sources suggesting there will be a vote on the floor of the united states senate tonight at some point. the house of representatives has now gone into recess. they will not reconvene until noon tomorrow. let's bring back robert reich the former clinton laborer secretary and grover norquist who is obviously very much involved in all of this as well. robert reich, first to you on this whole notion. it's surprising to me that you're holding out for so much when the president has done his best -- the vice president has done his best to achieve what they think is achievable. but you're saying it's not good enough. >> i think that the president and the vice president have more bargaining leverage or at least had. i think the bargaining is over. when you consider that not only did they win the election, but that overwhelming majority of americans on almost every poll show they are in favor of increasing taxes on people

earning over $250,000 ending the bush tax cut on people earning over $250,000. and also considering that the fiscal cliff is on the side of the democrats and the president. that is if we went over the fiscal cliff, well, then the democrats have an opportunity to put in new legislation offering a middle class tax cut which the republicans would have been hard pressed not to agree to. given of all this, wolf, it seems to me that could have -- that is the president and the vice president could have struck a better deal. >> so are they just bad negotiators? >> are you going to ask me to say something like that? no, i just think that they could have done better. they could have pressed the republicans harder. >> what's the biggest succession, grover norquist, that republicans made this first round? >> that you didn't have a continuation of all the tax cuts into the future. >> that's the biggest concession? >> two years ago obama and the democratic house and the democratic senate extended all the bush tax cuts for two years.

>> and at that time the president said it would not happen again. >> but the president also did it because he said it would hurt the economy not to. now that he's safely in his job, that doesn't seem to be keeping him up at night that other people may lose jobs. >> are you afraid, mr. secretary, that if the u.s. were to really go over the u.s. fiscal cliff that the economy would go back into recession, unemployment would go from 7% to over 9%. that thousands of people would lose their jobs? >> no, wolf. i don't think there would be a permanent situation where we went over the fiscal cliff and nothing was done. my point is that if we went over the fiscal cliff and tax rates went up and spending cuts were substantial, that republicans would be under a huge pressure, even greater pressure than they are now to agree to a democratic initiative to cut middle class taxes and also restore the spending cuts that really do need to be restored.

especially for the middle class and the poor. under the present circumstances, we to some extent have the worst of both worlds. the president loses the bargaining advantage of having that fiscal cliff and also having the public behind him. and has given in to republican demands of moving that threshold from $250,000 over $450,000. >> we've got to leave it there. grover norquist and robert reich, thanks to both of you. i know you'll be joining us later tonight as well. we're following other stories here in the "situation room" including a deadly plane crash caught on tape. now there are new clues in this airline disaster. plus a close call for the top ranked tennis player. stand by. pocket agent app. you can also get a quote and pay your premium with this thing. i thought state farm didn't have all those apps? where did you hear that? the internet. and you believed it? yeah. they can't put anything on the internet that isn't true. where did you hear that? [ both ] the internet. oh look. here comes my date. i met him on the internet. he's a french model.

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some remarkable plane crash video. mary snow is monitoring that. some other top stories in the "situation room" right now. what do you have there? >> a dash cam captured debris from 234e crash scattering across a highway. it happened over the weekend at a moscow airport. a red wings airline jet overshot the airway, possibly e y due to brake failure. there were no passengers on board, only the crew, five of whom were killed. >> take a look at what happened

to tennis star novak djokovic. a crowd barrier fell on his legs as fans surged forward to get his autograph. he wasn't seriously hurt, but he did appear to limp off the court, and he cancelled his post-match news conference. he returned to play later in the day. he called the incident a bit of a shock. >> and insurance giant aig wants to say thank you to you. it's launching an ad campaign thanking the american taxpayers for the $200 billion government bailout that kept the company from collapse back in 2008. aig has paid the money back, and notes that taxpayers netted more than $22 billion profit from the deal. wolf. >> thank you, mary. countdown to the new year. we're going live to london where it's almost midnight. key west, florida, where the party is just getting started.

a little bit more than six minutes from now, they're going to be bringing in the new year in london. you're looking at live pictures on the right there, big ben in london. six minutes away right now from the new year in london. you're looking at live pictures over there. we'll show you some of the

excitement at the top of the hour. we're still more than five hours away from new year's eve here on the eastern time zone of the united states. looking at live pictures from times square right now. the party is already getting started, as it always done a little earlier. in key west florida, that's where john zarrella is standing by. walk us through what is happening tonight in key west, john. >> reporter: sure, wolf. they have been partying all day in key west. we're on duval street, home of the famous bourbon street pub and the red stiletto. that's where sushi the drag queen will be coming down in the shoe at midnight. we're staped down here, been down here for ten years and the crowd is gathering. folks who wanted to be in "the situation room," right? >> right. >> where are you from? >> indiana. >> indiana? >> where the snow is deep. >> it's colder there than here? >> quite a bit.

>> where are you from? >> jacksonville, illinois. >> chilly up there? >> it's a thrill to be in "the situation room." what a way to end 2012. >> exactly. i have the mayor with me, and mayor, this is a big night for you. how are the crowds looking? >> great, every room in key west, hotels and guest houses are sold out. >> we have this big event here, the annual drop of the shoe with sushi, but you have other things going on here as well, up and down bourbon street and other parts of key west. >> we have a dropping of the new key lime -- >> key lime drop, huh? into a margarita glass. only in key west. >> and then sloppy joe's, we have the dropping of the conch shell. >> what about the new years resolutions. >> it's all good. i'm jack, from ohio. been down here 15 years, great place to be for new year's. i recommend it for everybody every year.

>> but no resolutions? well, what can i tell you, wolf? they don't have any resolutions here right now, but i'm sure -- you can see the crowd picking up on bourbon street. look at this. duval street, and we're at the bourbon street pub. again, we'll be here all night to bring in the new year key west style. wolf. >> you look very, very distinguished, too. i love the tuxedo, the whole outfit. you guys are going to have a few laughs in key west ringing in the new year. we'll check in with you. in a moment, we're also going to go to london. we're going to watch the british capital ring in the new year as well. excuse me, sir i'm gonna have to ask you to power down your little word game. i think your friends will understand. oh no, it's actually my geico app...see? ...i just uh paid my bill.

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